Richard Waters and Chris Nuttall at the Financial Times have today published an article explaining that ‘Web 2.0 Fails to Produce Cash‘. (not surprisingly the blogosphere has responded) A good summary of the article comes in the opening sentence, which states:
Many members of the Web 2.0 generation of internet companies have so far produced little in the way of revenue, despite bringing about some significant changes in online behaviour, according to some of the entrepreneurs and financiers behind the movement.
Interestingly, I have to wonder if it’s easier for FT.com writers to criticize all these ‘web 2.0′ applications, instead of acknowledging that part of the issue is probably due to deeper and more systemic problems with current online advertising. (After all, FT.com would have to acknowledge having the same issues and maybe even lead to the fair response from readers - “doctor heal thyself”.)
As media companies struggle to figure out their digital future, the elephant in the room is that they have only been able to monetize online audiences for pennies on the dollar compared to traditional media. Here’s why: Traditional advertising formats FAIL on the web. By traditional advertising formats, I mean display ads, video ads, and any other ad whose format and value proposition approximates or imitates that of an offline advertising format.
Scott also points out this problem is effecting newspapers (yes I’m sure this includes the FT) and magazines as well:
Just ask newspapers and magazines about their ad pricing power in print vs. online. Can you imagine a print publisher getting $1 for 1,000 times an ad was seen? You’d go bankrupt after one issue.
I was preparing to move apartments this weekend and so I had ample time to reflect on these challenges for online advertising while packing. Scott & Alexander highlight some important concerns, but I don’t draw the same conclusions. I’m far more bullish on the future of online advertising and the web.
After thinking about it through the weekend, I continue to believe what I predicted at the turn of the year on ReadWriteWeb:
Non-search advertising on the web will increase in value significantly. This will be done through a lot of innovation in the ad targeting systems (both behavioral and contextual) and new metrics being adopted by Madison Ave beyond CPC and CPM.
Both of these steps (improving targeting systems and adopting new metrics) will take time and energy from relevant entrepreneurs. However, the web is a platform where people are spending more and more time and providing more information about themselves. Therefore, marketers will develop the appropriate ways to deliver relevant and engaging messages to visitors. And when they do, effective CPMs (probably derived from another metric) will reflect this.
Finally, a note going back to the FT.com piece, others have pointed out that there are great web applications built on revenue streams other than advertising. I think it’s great some entrepreneurs are choosing this path and don’t want to discount this at all. I am just reacting to the fact that most web properties, like media before will be ad supported and positing there will be a path to profitable revenue for large online properties soon.